Best Video Game Stocks to Buy Offer Array of Choices

Paul Dykewicz

The best video game stocks to buy offer a wide variety of choices that include companies offering live streaming, equipment manufacturing and subscription services.

The video game market produced an estimated $149 billion in revenues in 2019 but is expected to reach $216 billion in 2024, according to the New York-based technology investment firm ARK Invest. The best video game stocks to buy consist of traditional technology giants that generate a portion of their business from the industry, along with other public companies that give investors a more direct way to profit from the trend.

An 8 percent cumulative annual growth rate (CAGR) is expected for video game revenues between 2019 and 2024, estimated Nick Grous, a research analyst who specializes in tracking the industry for ARK Invest. One of the key recent growth drivers that should expand in the years ahead is for the industry to branch out and capture new revenue streams, Grous told me in a phone interview.

For anyone who doubts the current popularity of video games, the industry produces far more revenues annually than music and movies combined. Video games sales are estimated to have generated $148.8 billion from 2.5 billion gamers around the world in 2019, more than doubling the collective revenues from movie box office sales and music.

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In 2010, consoles and personal computer (PC) platforms composed the equipment used to play video games, but mobile devices in recent years have become an increasingly important delivery method, Grous said. Additional revenue growth has come from live gaming and esports, he added.

The result is an economic ecosystem that keeps gamers involved in ways other than playing. Video game fans now follow the exploits of their favorite streamers online and sometimes even pay to enter venues that host esports to allow spectators to watch competitions with other fans. 

ARK Invest’s ARK Next Generation Internet ETF (NYSE Arca:ARKW) exchange-traded fund (ETF) includes video game stocks among its holdings. Grous participates in the selection of stocks for that fund and told me that Tencent Holdings Ltd. (OTC:TCEHY) and SEA Ltd. (NYSE:SE), both participants in the video game business, are among its current holdings.

Chart courtesy of www.stockcharts.com

Best Video Game Stocks to Buy Boosted by Live Streaming

Stocks that specifically have a role in live video gaming include Twitch, which Amazon.com (NASDAQ:AMZN) acquired in 2014 for almost $1 billion, YouTube Gaming, Facebook (NASDAQ:FB) gaming and Microsoft’s (NASDAQ:MSFT) Mixer.

Chart courtesy of www.stockcharts.com

Chart courtesy of www.stockcharts.com

Former Twitch star streamer Tyler Blevins, known by the nickname “Ninja,” gained heightened attention last August when he switched to the Microsoft (NASDAQ:MSFT) Mixer service. Ninja’s new exclusivity deal not only gave Microsoft’s Mixer service a burst of publicity but began a series of new deals for other gaming stars. “Ninja,” who became the top streamer on Twitch with 100,000 paid subscribers before he left for Mixer, earned an estimated $500,000 a month in 2019.

“He plays the game, but he streams and allows a small picture of what he is doing,” Grous said. “He is as big a name in ‘Fortnite’ as anyone in the world.”

“Fortnite” is played cross-platform across Xbox, PlayStation, Mobile and personal computers, Grous said.

Nick Grous

Last October, Michael Grzesiek, who plays under the nickname “Shroud,” bolted from Twitch, where he had amassed 7 million followers, to Mixer, Microsoft’s live streaming platform. 

The latest move came Jan. 13, when Alphabet Inc. (NASDAQ:GOOG) announced its Google YouTube Gaming business reached exclusive live streaming pacts to grow its viewership. Market-leading Twitch’s overall share dipped in 2018 from 75 percent, based on hours watched, to a still-dominant 73 percent in 2019, while second-place contender YouTube Gaming fell by 1 percentage point to 21 percent.

Chart courtesy of www.stockcharts.com

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Chart courtesy of www.stockcharts.com

Publicly traded companies in China that are involved in live streaming video games include DouYu International Holdings Ltd. (NASDAQ:DOYU), a platform that also is a pioneer in esports, and Huya (NYSE:HUYA), which went public in May 2018 and has arranged content partnerships with several esports organizers, game developers and publishers. The two companies account for 60 percent of China’s game-streaming and Motley Fool recently cited Huya’s “attractive valuation” with a forward price-to-earnings (P/E) multiple of 21.5, even though Wall Street analysts’ consensus is for the company to grow 79.5 percent in 2019.

Chart courtesy of www.stockcharts.com

Video gaming in past years had reached the mainstream but largely had been limited to its users playing games and signing off, Grous said. Now, video gaming is connected to “live platforms” that allow its aficionados to stay abreast of the action through live streaming and esports without keeping “fully engaged,” he added.

Now, video game fans can watch their favorite streamers play competitively much the way spectators can observe their favorite players in Major League Baseball, the National Football League, the National Basketball Association and the National Hockey League. 

The growing popularity of video gaming is allowing companies that operate in that marketplace a chance to build out new revenue streams, Grous told me. Revenue comes in the form of selling gaming consoles, controllers and games, as well as live streaming, subscription-based services and “virtual gifts” sent to streamers by their devoted followers, he added. 

A “middleman” collects revenue off such micro gift transactions, Grous continued. The virtual gifts to elite streamers from their fans are becoming “huge” in China, Grous added.

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Video games originally were only one-dimensional but now encompass more than just playing the game.

“It is starting to replicate what happened with TV in its early days,” Grous said. “It is building an economic ecosystem beyond just playing video games. It is building culturally significant moments in which people are talking about what one did in ‘Fortnite’ or ‘Call of Duty.’ Gamers are developing friends around the world who play against them in their favorite video games.”

New ways of producing revenues have included featuring “culturally significant moments,” Grous said.

“Fortnite” created a cross-over event with “Star Wars” by including an exclusive movie trailer within its game for the film, “The Rise of Skywalker.” It is a way for “Fortnite” to invent an event for current players but entice someone who would be new to the game to watch the exclusive clip, Grous said.

In addition, “Fortnite” held a virtual concert featuring a D.J. called “Marshmello” in a game. Plus, “Fortnite” engaged in a cross-over event with Marvel by taking the character, Thanos, and building a game around him.

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“Video games used to be very mainstream but now have become more talked about and culturally significant,” said Grous, who added the demographic of video game fans generally is popular among the young but extends to adults in their 50s.

Video gaming is an “ancillary business” for a lot of companies, Grous said.

Amazon has Twitch, a live streaming platform, Microsoft has the Xbox console and Apple (NASDAQ: AAPL) has Apple Arcade, a subscription service.   

“We believe these are the companies best positioned to win,” Grous said.

Stocks worth watching particularly in the Gaming IP arena are: Activision Blizzard (NASDAQ:ATVI), featuring an 0.62 percent dividend yield, TenCent (OTC:TCEHY) of China and Nintendo Co. Ltd. (OTC:NTDOY) of Japan, Grous said.

Stocks that offer video streaming platforms include: Huya, a Chinese company also involved in microtransactions; Twitch, of Amazon (NASDAQ:AMZN); and Sea Limited (NYSE:SE), an owner of Garena, which has “FreeFire,” one of the most popular video games with 450 million users. Sea Limited also currently offers a 4.40 percent dividend yield.

Big companies with exposure to gaming are Facebook, Google, Apple and Microsoft. All have ancillary gaming businesses that will grow as the video game industry expands, Grous said.

“We really are just excited about this space in general,” Grous continued.

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“It has been a few years since the major video game console manufacturers released new devices,” said Bob Carlson, who leads the Retirement Watch advisory service. “Almost all of them are planning to launch new consoles in late 2020 just in time for the holiday shopping season.

“Historically, the introduction of new consoles boosts sales of video games, and the stocks of the video game makers begin rising a year or more before the new consoles are introduced. Already we’ve seen solid gains in Activision and Electronic Arts (NASDAQ:EA). I expect that to continue through 2020 unless there are problems with the introductions of the new consoles.”

Each company has strong product lines of “very popular games,” Carlson told me. “They also have additional games in the pipeline.” 

Chart courtesy of www.stockcharts.com

Expansion Lies Ahead for Best Video Game Stocks to Buy

Video gaming is a “huge global business” with vast room to expand, said Hilary Kramer, host of a national radio program called “Millionaire Maker and a new book, “GameChanger Investing.” 

It’s at least five times as exciting as streaming video, said Kramer, whose GameChangers advisory service has booked 33 profitable trades in its last 39 closed positions. “Just do the math: TV viewing in the United States has plateaued at about 35 hours a week, so at this point there isn’t a lot of organic growth left to capture. Every new show we make time to watch literally steals attention from everything else. With gaming, on the other hand, people across most developed economies generally only play seven hours a week, so we’re a long way from total saturation. And game time is up 20 percent over 2018. There’s a very good reason China now enforces nationwide curfews to keep kids from the game apps.”

A “great” part about organic growth is that video gaming is a fragmented industry with many entrants chasing their share of the market, without much clear leadership, said Kramer, whose 2-Day Trader service has netted profits in 22 of its first 28 trades for an average return of 11.04 percent.

“Anyone can still win it, so to speak,” continued Kramer, who also leads the Value Authority advisory service. “I’d start a portfolio with a position in Take-Two Interactive Software (NASDAQ:TTWO), which isn’t the biggest game company around. Mighty Microsoft itself probably earns that title via the Xbox, but it’s one of the most dynamic of the independents thanks to the persistence of the ‘Grand Theft Auto’ franchise. It’s also made my Turbo Trader subscribers money in the past.” 

Chart courtesy of www.stockcharts.com

“Meanwhile, Zynga (NASDAQ:ZNGA) has recovered from the Farmville crash and looks reasonably priced down here below $7,” Kramer said. “We’re a long way from the 2012 peak but the company is now right sized, efficient and capturing plenty of casual gamers. That’s where the growth is. If someone turns on a phone to waste a few minutes, odds are good Zynga developed the game and books advertising revenue. Sales jumped 60 percent last year and in 2020 I expect more of the same. This might need more time to be a $15 stock again, but $10 is not out of the realm of possibility.”

Columnist Paul Dykewicz interviews Wall Street money manager Hilary Kramer, whose investment advisory services include High Octane Trader and Inner Circle.


Chart courtesy of www.stockcharts.com

The electronic gaming industry, including video game stocks, will benefit greatly from two similar technological trends, said Jimmy Schaeffler, a senior analyst at the Carmel Group, a telecom industry research firm in Carmel-by-the-Sea, California.

First is the greater deployment of better-quality broadband, across the nation,” Schaeffler said. “Next is the improvement in the technology needed.”

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For example, new 5G capabilities are coming from major mobile carriers, Schaeffler said. Improved mobile gaming is but one large part of both the better-quality broadband and enhanced technology trends, he added.

“Based partly on those indicators, there is room for renewed optimism,” Schaeffler said. “The three or four major publicly traded companies that most talk of right out of the gate have strong prospects.”

Those stocks are Electronic Arts, Activision and Take-Two Interactive, Schaeffler said. 

“Of those, I have followed the longest and have the most respect for Activision,” Schaeffler said.

Chart courtesy of www.stockcharts.com

The games “Call of Duty” and “Diablo” are but two of Activision’s products that resonate well with the gaming public and industry, Schaeffler continued. 

Chart courtesy of www.stockcharts.com

“Additionally, I look for the possible outliers that have the makings to take off, and in that crowd I especially like a couple of the big content providers, Comcast (NASDAQ:CMCSA) and Disney (NYSE:DIS),” Schaeffler said. “Disney, for example, also owns ESPN, which is a continuing treasure trove of sports content for its video gaming future.”

Chart courtesy of www.stockcharts.com

Plus, Comcast offers a current dividend yield of 1.83 percent, while Disney’s dividend yield is 1.22 percent. 

Investors have a plethora of opportunities to buy the best video game stocks. The challenge is to identify the ones that have the highest potential while limiting the related risk.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street JournalInvestor’s Business DailyUSA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is the editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. Endorsements for the book come from Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Dick Vitale and many others. Follow Paul on Twitter @PaulDykewicz.

 

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